The Playbook Venezuela: The Communist Manifesto

The economic turmoil that castigates Venezuela has received increasing international media attention over the past few months.

In September, the ongoing shortage of toilet paper (which occurred after the food shortages and blackouts in the power sector) led the government tooccupy a factory of toilet paper , with the massive use of military force, with the aim of ensuring ” fair distribution “of stocks available. It seems comical, but is immensely tragic.

Similar action occurred in November against a retail network of electronics : after President Nicolas Maduro accused manufacturers of price manipulation, he ordered the army to occupy the premises and confiscate all goods in order to sell them at “a fair price “. Immediately thereafter, Maduro had arrested the traders and even sent the warning that “this is just the beginning of what I do to protect the Venezuelan people.”

Mature asserted that the government would henceforth supervise all retailers in the country to ensure that prices were significantly reduced. Also ordered that all stocks of the stores should be settled. In a televised speech, he sent the message : “Let nothing remain on the shelves.”

Also in early November, immediately after creating the Ministry of Social Supreme Happiness – in another attempt to ensure the “happiness for all people” – Maduro announced that it would advance the home for the month of November. The aim was to “bring happiness to the people and fight the bitterness.” Immediately thereafter, the president began distributing Christmas goodies , already thinking in municipal elections in December.

But this populism was not just a matter of political strategy. The rate of price inflation in Venezuela, as will be demonstrated below, is already in the three digits . In a scenario like that, wages must be distributed quickly, before prices rise even further, hence the “anticipation” of the Christmas bonus. This type of policy has absolutely nothing new in the economic history of the world: the current hyperinflationary episode of Venezuela is unfolding in a very similar way to the Germany of the 1920s .

The downward spiral of the Venezuelan economy began in earnest when Hugo Chavez has imposed its “dark socialism” to the country, an eccentricity that at the time, came to be fairly well received by many sectors of the mainstream media. For years, Venezuela has maintained a massive program of social spending combined with wage and price controls and an extremely rigid labor market and to maintain, as foreign policy, an aggressive strategy of international aid geared mostly to Cuba. All this insane house of cards managed to remain solvent for a long time solely because of oil revenues.

But as the costs of populism were growing, the country had to resort to more and more often to the coffers of the state oil company PDVSA and the money from the Central Bank of Venezuela printer. This resulted in a continuous decline in the value of the bolivar – a decline that accelerated further after news about the critical state of health of Hugo Chavez began to emerge.

Chavez’s death, on March 5, 2013, an earthquake generated across the Venezuelan economy. Not surprisingly so, since his successor Maduro took control of the country, the castle of Venezuelan cards began to collapse. The exchange rate of the bolivar on the parallel market illustrates this story well. Since the death of Chavez, the bolivar has lost 64.5% of its value against the U.S. dollar on the parallel market, as shown in the chart below.

This sudden devaluation of the bolivar, in turn, generated a high price inflation in Venezuela. For highly statist economies, devaluation of a currency on the parallel market is the measurer that best estimates the actual value of that currency. Measurer with this, we can infer that price inflation “repressed” in Venezuela is currently in three digits, reaching dizzying annual value of 297%, as shown in the chart below.

This rate of 297% is five times higher than the official rate of price inflation of 54%, which is published by the Venezuelan government and repeated by the international press.

Indeed, I read in the Financial Times this value “54%” and wonder: “How do they believe this?” But the answer is crystal clear: Venezuelans censors are very effective. Maybe not as much as the Chinese censors, but still effective. Journalists crowded in Caracas that I talk to often tell me that the news agencies have voluntarily do all the work of self-censorship in favor of the government because they want to avoid their journalists in Caracas are expelled.

The government reacted exactly like all populist governments react to price increases caused by their own policies: imposing control increasingly rigid prices. The problem is that, at least in Venezuela, such policies are nothing new. For years the government controls the prices of various goods. For example, the price of a gallon of gasoline premium is frozen at U.S. $ 0.058, which makes a gallon of gasoline is cheaper than a gallon of drinking water in Caracas.

Although this policy apparently freezes keep prices under control in the official market , it inevitably – asLudwig von Mises explained already several decades – leading to shortages and generates empty shelves. In fact, as the chart below shows, the Central Bank of Venezuela own approximately 22.4% of all the goods in the market are simply no longer available in shops and supermarkets in Venezuela. This index looks like a remix of that classic song by Paul McCartney: ” Back in the USSR “.

Besides the shortage, price controls may lead to unimagined political consequences. Once price controls are implemented, it is very difficult to withdraw them without generating popular unrest – see the riots that occurred in 1989 in Venezuela, when President Carlos Perez tried to abolish the price freeze.

Recently, in a reckless reaction to the economic woes of the country, Maduro demanded – and got – that Congress grant him emergency dictatorial powers over the entire economy. His first measure was to set a limit on corporate profits . This, however, is just a tactic to be distracting, because the own-price inflation erodes profits and dilutes the rate of return on investments.

Maduro also launched a fierce attack on the automotive industry, signing a decree to regulate the production and prices of cars “from the factory gate to the retail outlets.” As a result, the government began to control the prices of cars and threatening to arrest all those who dare to sell cars to their market prices. It will be interesting to see who Ripe blame when this measure will result in shortages of new cars.

This choice between “fair” price and imprisonment is now the norm for entrepreneurs Venezuela. The most outrageous episode remains that occurred in early November – and reported at the outset – when government security forces occupied electronics stores and began delivering televisions and other electronics to a “fair” price (read “minimum price”). Herbert Garcia, head of the High Commission for the People’s Defense Economics,said very clearly : “We must ensure that all people have a plasma TV and a refrigerator last generation.”

As might be expected, the masses flocked around the shops to ensure their share of plunder. The only problem is that the government has failed to make its state power grid provide enough electricity to feed the dispossessed electronics products, and theconstant and massive blackouts are not letting the spoilers enjoying the products of their withdrawals.

In most countries, this state would be called theft.However, in the Marxist reign of Ripe, this redistribution has become just a normal routine.

Despite frequent references to the “Bolivarian revolution” of Hugo Chavez, the truth is that strategic manual used by Maduro is nothing more than a rehashed the 10 points of Marx and Engels platform outlined in the Communist Manifesto . The Manifesto is a crystal clear roadmap that outlines the steps to be followed by the advocates of communism. As soon as one considers the ten points of the Manifesto , it becomes clear that the ideas Maduro (and the other politicians around the world) do not have anything original.

1. Expropriation of land ownership and use of land rents for state expenses.

2. Strongly progressive tax.

3. Abolition of all rights of inheritance.

4. Confiscation of property of all emigrants and rebels.

5. Centralization of credit in the hands of the state through a national bank with State capital and an exclusive monopoly.

6. Centralization in the hands of the State, of all means of transport.

7.Extension of factories and instruments of production owned by the State; land clearing of uncultivated lands and improvement of cultivated land, all in accordance with a general plan.

9. Unification of agricultural and industrial work activities with a view to phasing out the difference between town and country.

10. Free public education for all children. Elimination of child labor in factories in its modern form. Unification of education with industrial production, etc..

The results of these policies based on the Manifesto are clear. The World Bank ranked Venezuela in fatal 181st position among 189 countries in the ranking ” Doing Business “(which measures the ease of undertaking) 2014. This puts Venezuela well behind countries ravaged by wars, such as Syria, Iraq and Afghanistan.

Although Maduro like to think of himself as a modern Robin Hood, he is more to Edward John Smith, captain of the Titanic. That said, the economic misery created by joining the Communist Manifesto can take a long time to sink a ship (think of the USSR).

If you doubt this, just think of the popular support that is continually being given to the government Maduro. In the first week of December, there were elections to 337 municipalities in the country, and the Socialist Party Maduro (PSUV) annihilated the opposition. Mature emerged victorious from the elections stating that “their economic offensive” against private companies would continue and that “Let’s go out shooting at everyone, so beware.”

Unfortunately, even with an inflation of prices in the triple digits, Maduro may still persist very long in power.After all, Slobodan Milosevic also adopted the Manifesto in Yugoslavia, and this resulted in greater hyperinflation in history – which reached 313 million% in January 1994. And Milosevic remained in power until 2000. Then there was the Robert Mugabe of Zimbabwe. He has been in power for 33 years, even with its adherence to the schemeManifesto having generated the second highest hyperinflation in the world – which reached 98% per day in November 2008.

So do not have high expectations for a possible uprising in Venezuela because of a high price inflation or great economic distress. Unless a barrel of oil falls to $ 50, the Titanic called Venezuela can still stay afloat longer than you might imagine – before he inevitably sink.

Steve Hanke is professor of applied economics and co-director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at Johns Hopkins University in Baltimore, USA. Professor Hanke is also a senior fellow at the Cato Institute in Washington, DC.